Report tools

Corporate governance report

Committees of the Board

The principal committees of the Board are the Audit, Remuneration and Nomination Committees.

	Committee membership
Name	Nomination	Audit	Remuneration
Marc Bolland	x
Brian Flanagan	x	x	x
Sir Ian GIbson	x		x
Paul Manduca	x	x	x
Susan Murray	x	x	x
NIgel Robertson	x	x	x

The Directors attended the following numbers of Board and Committee meetings:

	Board	Nomination	Audit	Remuneration
Number of meetings	12	1	6	8
Marc Bolland	12/12	1/1
Brian Flanagan	12/12	1/1	6/6	8/8
Sir Ian GIbson	12/12	1/1
Mark Gunter	11/12
Martyn Jones	12/12
Paul Manduca	12/12	1/1	6/6	7/8
Sir Ken Morrison	3/3
Susan Murray	12/12	1/1	6/6	8/8
Roger Owen	11/12
Richard Pennycock	12/12
NIgel Robertson	11/12	1/1	5/6	8/8

The Company Secretary organises the appropriate level of insurance cover for Directors to defend themselves against legal claims and civil actions. The level of cover is currently £60m aggregate.

Full terms of reference of the Committees are available on request and on the Group’s website www.morrisons.co.uk

a) Nomination Committee

During the year, the activities of the Committee were focused on recruiting a Non-Executive Director with recent and relevant financial experience.

The project culminated in the appointment of Philip Cox, who will take up his position as a Non-Executive Director with effect from 1 April 2009.

The Committee employed executive search agency, MWM Consulting to identify candidates who were then interviewed by members of the Committee. Meetings also took place with other Executive Directors as appropriate. Following this process, the Nomination Committee recommended the appointment of Philip Cox to the Board on 19 February 2009.

b) Remuneration Committee

The objective of the Group’s remuneration policy is to encourage a strong performance culture and emphasise long term shareholder value creation. The intention is to position remuneration arrangements competitively against the market, with a clear reward structure to enable the Group to attract, retain and motivate the best talent, who are key to the Group’s recent and future success.

The Human Resources Director has advised the Group on all remuneration related matters, including pensions and Executive Directors’ contracts. Where necessary, this advice was supplemented by external advisors.

The Committee also receives advice from its appointed advisors Hewitt New Bridge Street on remuneration matters, Jardine Lloyd Thompson in respect of pensions, and Ashursts, in respect of Executive Directors’ contracts.

c) Audit Committee

The Board has delegated to the Audit Committee the responsibility for reviewing on its behalf:

the integrity of financial reports;
the effectiveness of the Group’s internal control and risk management system; and
the independence of the external auditors.

The Audit Committee’s responsibilities have not changed during the year.

The Audit Committee regularly considers the professional development needs of its members, and whether adequate technical information is being provided. Where necessary, it will seek independent external advice at the Group’s expense, with such arrangements made through the Company Secretary. Whilst the Audit Committee was short of a member with recent and relevant financial experience, the Company Secretary had retained at the request of the Audit Committee Chairman, the services of PricewaterhouseCoopers LLP to advise the Audit Committee at relevant times during the year.

There has been no change in the composition of the Audit Committee during the year and the roles of the members also remained unchanged. It is intended that Philip Cox will chair the Audit Committee after an appropriate period of induction. The Chairman, the CEO, the Group Finance Director, the Head of Risk and Internal Audit and other finance department representatives have attended meetings by invitation.

i) Overview of actions taken by the Audit Committee in discharging its duties

The Committee has received and reviewed reports and presentations from senior management to fulfil its terms of reference. To meet its responsibilities in this respect, the Committee considered:

interim and preliminary announcements, together with any other formal announcements relating to financial performance;
the accounting principles, policies and procedures adopted in the Group’s financial statements including, where necessary, challenging the judgements made; and
the potential effects of tax and pensions accounting and other significant judgemental and complex accounting issues dealt within the financial statements.

The Audit Committee oversees the Group’s relationship with the external auditors. Private meetings are held with the external auditors, without management present. The purpose of these meetings is to understand their views on the control and governance environment and management’s effectiveness within it. To fulfil its responsibilities in respect of the independence and effectiveness of the external auditors, the Committee reviewed:

the terms, areas of responsibility, duties and scope of the external auditors as set out in the engagement letter;
the external auditors work plan for the Group and its subsidiaries;
the detailed findings of the audit, including a discussion of any major issues that arose during the audit;
the letter from KPMG Audit Plc confirming its independence and objectivity; and
the audit fee and the extent of non-audit services provided by the external auditors.

In this period the external auditors have provided a significant level of non-audit work, primarily to provide the Board with independent assurance in respect of the IT systems replacement. The Board believes that this activity is a reasonable extension of their statutory audit work and that there are safeguards in place to avoid a threat to their independence or objectivity. The Board has a policy on the engagement of the external auditors to supply non-audit services and the Committee has reviewed the scope of non-audit services provided by the external auditors to ensure that there was no impairment of objectivity.

ii) Internal control

The Board is responsible for setting a system of internal controls for the Group and reviewing its effectiveness. The control system is intended to manage rather than eliminate the risk of not meeting the Group’s strategic objectives, whilst recognising that certain inherent risks may be outside the Group’s control. Any system of internal control can only seek to provide reasonable, not absolute, assurance against material misstatement or loss.

The Board delegates to the Audit Committee the review of the effectiveness of the Group’s internal controls and risk management systems. During the year, the Committee discharged this responsibility by:

receiving and considering regular reports from the internal audit function on the status of internal control and risk management systems across the Group. The Committee also reviewed the department’s findings, annual plan and the resources available to it to perform its work;
reviewing the external auditor’s management letters on internal financial control;
seeking reports from senior management on the effectiveness of the management of key risk areas; and
monitoring the adequacy and timeliness of management’s response to identified audit issues.

During the year, a Group-wide process for identifying, evaluating and managing the significant risks faced by the business was initiated. This process consisted of various workshops, facilitated by the Head of Risk and Internal Audit, designed to identify formally and document the key risks faced by various business operations in achieving their business objectives. Risks identified as part of this process are evaluated based on the likelihood and potential impact of each risk and where necessary, actions to mitigate the risks were also identified.

In order to further strengthen the internal control environment, the Group introduced whistle-blowing procedures in February 2008 in order to enable colleagues to raise concerns about possible malpractice or wrongdoing. The Audit Committee receives regular reports from the Head of Risk and Internal Audit on any whistleblowing activity. Whilst there were no significant concerns raised by colleagues, all actions required were discussed and agreed with the Committee.

The Board is satisfied that a continual process for identifying, evaluating and managing significant risks has been in place for the financial year and up to the date of this Annual report. To date, no material financial problems have been identified that would affect the results reported in these financial statements. The Board confirms that if significant weaknesses had been identified during this review the Board would have taken the necessary steps to remedy them.

Shareholder relations

The Chief Executive and the Group Finance Director meet regularly with analysts and institutional shareholders. The Investor Relations Director also maintains a programme of work that reports to the Board the requirements and information needs of institutional and major investors. This is part of the regular contact that the Group maintains with its institutional shareholders. All Directors, Executive and Non-Executive, attend the AGM. The Chairs of the Audit, Nomination and Remuneration Committees are available to answer any questions. Additionally, the Group’s brokers sought independent feedback from investors following the annual and interim results in 2008. This feedback was reported to the Board.